MReport September 2018

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TH E M R EP O RT
TAKE 5
From helping servicers overcome systemic issues, to giving greater recognition to them for
superior performance, Freddie Mac's Servicing Success Program is helping servicers enhance
their performance for mortgage loans. Yvette Gilmore, VP, Servicer Relationship & Performance
Management at Freddie Mac spoke to MReport about the Servicing Success Program and how
servicers can reimagine the business in an industry environment that is constantly changing.
M // Can you tell us more about
the Servicing Success Program,
and how it benefits servicers?
GILMORE //
There are three
components under the Servicing
Success Program managed by
my team and me. The first is our
servicing success scorecard—a de
-
tailed performance metric that we
lay out for servicers. The score-
card's details are also available at a
broader level so that servicers can
determine what loans are driving
the performance metrics in their
results.
The second component is the
loan file reviews, where we pull
the collection files and compare
what the servicer is doing to
manage our loans against the
policies that we publish in the
Freddie Mac Seller/Servicer Guide.
Incentives and remedies are our
program's third component. Our
remedies help servicers overcome
any systemic issues that cause loss
to the firm. Those remedies dra
-
matically decrease as the servicer's
performance improves, resulting
in incentives for them.
We plan to make some changes
to this program to further enhance
managing servicer performance in
2019. At a broad level, the change
would be to give greater recogni
-
tion for superior performance and
making sure we're upfront about
the difference between good ser-
vicing and great servicing.
M // What trends are you seeing
on the servicing side of portfo-
lios?
GILMORE //
We're seeing four
trends on the default servicing
side. The first and most obvious
one is seriously delinquent levels
(SDQ). In 2010, our SDQ rate was
upwards of 4.2 percent. In January
2017, it fell below 1 percent. While
these numbers are a culmination
of how our team manages per
-
formance, the heavy lifting was
done by our servicer clients who
implemented the policies and pro-
cedures necessary to bring the right
resources to their borrower clients.
The second trend is a change
in the composition of our servicer
clients. Around 2007, 90 percent
of our clients were large national
banks. Only 10 percent were non
-
depositories. In 2017, the share of
large national banks doing business
with us constituted around 60 per-
cent to 66 percent and 34 percent
is represented by nondepositories.
We have had to adjust to this
change because the needs and
requirements of those clients are
different and we have learned to
customize to those different needs.
The regulatory environment is
the third trend. We just complet
-
ed a 2017 mortgage market survey
with Fannie Mae and FHFA and
our clients were loud and clear
about the regulatory environ-
ment leading to a definite focus
on compliance and how that has
led to making sure they're heav-
ily focused on borrower needs.
Regulatory requirements have
also driven a dramatic increase
in lenders' cost to service, which
makes it incumbent upon us to
facilitate efficiencies in the process
and remove as much friction as
possible given all other external
issues servicers are dealing with.
The last trend is the need to in
-
novate. As a business, servicing has
not seen a lot of innovation in the
last 20 years and to give servicers
the efficiencies they demand, we
must change our processes.
M // How do you think servicers
should reimagine business?
GILMORE //
In many ways,
servicers are already reimagining
their business. For example, one of
the ways servicers are managing
their different capital constraints is
by changing their business model.
A few years ago, we had three
major subservicers. Now, our large
national clients are finding it's
much more cost effective for them
to become subservicers. Therefore,
they are changing their models; be
-
cause of which we need to change
ours. So now we have scorecards
for subservicers, master servicers,
depositories, and everyone else in
between.
Since servicers must have that
level of visibility to manage their
subservicing clients, we are giving
them that level of visibility for
their different lines f business.
We must also augment and
change our processes to reduce
documentation and optimally
utilize our data. At Freddie Mac, it
is very important for us to use our
existing data without burdening
the servicer to give us even more
of it. Therefore, it is imperative
for us to collect the right data to
ensure that we recognize any sys-
temic inefficiencies at the servicer
side, as well as our own.
We are looking at reimagining
issues like default title, expense
reimbursement, and changes to our
Workout Prospector, along with
smaller, more incremental work
-
stream changes to make it easier for
servicers to do business with us.
M // How are nondepositories
or nonbanks different from their
peers?
GILMORE //
Nondepositories tend
to be much more cash sensitive,
so when we think about expense
reimbursement, we need to figure
out ways to get them their funds
faster with minimal rework and
reconciliations on their part. We
are working with our nonbank
clients to ascertain what they
need from us in that space. The
key is to make sure that we are
not introducing friction into the
process by requesting a lot of
documentation.
The more cash sensitive your
customer is, the more incumbent
it is upon you to make their job as
cost effective as possible, so they
can focus on things like manag
-
ing the borrower experience and
controlling delinquencies.
M // How do you facilitate
positive servicing practices for
change for homeowners?
GILMORE //
Our file reviews are
not just about finding inaccura-
cies with the servicer. They're also
to give us feedback on how we
write our policies.
Building Successful Partnerships